Hard money VS. Private money

What’s the difference between hard money and private money?

This is a common question we get from investors all the time.

While both are very important to have in your real estate investing business, there are some key differences that you need to be aware of so you know when to use them.

How Does Hard Money Work?

Typically, hard money loans are short-term, high-interest loans that are collateralized by a hard or tangible asset, usually the real estate project.

Hard money lenders usually advertise their services because that is their business.

Hard money lenders are more “mainstream” in that they have certain criteria for lending money, and their terms are laid out clearly.

They often use many of the same criteria for deciding who gets a loan as a bank, but they often consider clients that a bank may have turned down, or projects which fall outside the scope of what a bank is comfortable lending money for.

How Does Private Money Work?

Private lenders, on the other hand, are just private citizens (or groups of them) who offer to loan you the money based on their own terms.

A private loan might come from a friend, a business, a family member, or even from someone who sees your project as an investment from which they hope to reap a reasonable return.

Unlike banks or hard money lenders, the terms laid out for a private money loan need to be worked out explicitly between you and whoever is lending you the money for your project.

Which is best for your project?

It ultimately depends on your situation, the type of real estate project you’re doing, whether you are buying and holding or fixing and flipping, etc.

If you need a term sheet and pre-approval letter for an active deal that needs funding, please fill out our Real Estate Funding Form. It takes less than 5 minutes to complete with no credit pull.